March 13, 2020 / 10:59 PM / 22 days ago

UPDATE 1-Coronavirus pitches Mexican economy into battle against recession

(Adds analyst forecast details)

MEXICO CITY, March 13 (Reuters) - Economic turmoil sparked by the global coronavirus outbreak threatens to hamstring Mexican growth in 2020 and deepen a recession that started last year, analysts forecast on Friday.

Stung by weak investment due to uncertainty over the policies of President Andres Manuel Lopez Obrador, Mexican gross domestic product (GDP) shrank by 0.1% last year, the first annual contraction in a decade in Latin America’s No. 2 economy.

Barclays investment bank said on Friday 2020 would now be far worse than last year, slashing its GDP forecast for Mexico to a contraction of 2% from a prior estimate for 0.5% growth.

Disruptions in production chains, reduction in travel for business and tourism and the spread of the virus in Mexico would all likely take their toll, as would low private sector confidence and a lack of fiscal room to maneuver, Barclays said.

“Investment is likely to decline once more, both public and private,” Barclays said in a research note.

Moody’s Analytics was not quite as downbeat, but said if the coronavirus pandemic accelerated, with infections peaking mid-year, it would likely spark a global recession and could shave off just over 1.5% of Mexican GDP this year.

For its part, Capital Economics forecast the Mexican economy would shrink 0.5% this year, warning that risks for Latin America were, if anything, skewed to the downside.

Economic forecasters anticipate the Bank of Mexico will cut its interest rates when its board meets later this month, especially since the U.S. Federal Reserve lowered borrowing costs by 50 basis points earlier in March.

Still, Central Bank Governor Alejandro Diaz de Leon told Reuters on Friday a depreciation of the peso over the last few days could fan inflation, and hinted that any rate cuts could be smaller than those made by the Fed.

Alberto Ramos, an economist for Goldman Sachs, said the Wall Street bank was trimming its Mexico GDP forecast for 2020 by 70 basis points, and now saw a contraction of 0.1%.

“This assumes that the impact of viral outbreak peaks during the second quarter, and activity rebounds in the second half of 2020,” Ramos wrote in a research note. (Reporting by Noe Torres and Diego Ore Writing by Dave Graham Editing by Tom Brown)

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